Cable Attracting New Money

5/18/2007 8:00 PM Eastern

By: By Mike Farrell

Cable, satellite and telco holdings for the four biggest institutional funds held relatively steadfast in the first quarter, but new players are beginning to enter the sector, based on filings May 15 with the Securities and Exchange Commission.

The long-time media funds — Capital Research & Management, Capital Guardian Trust, Janus Capital and FMR Corp. — appeared to be following the advice of market strategists over the past few years, placing their bets on large-cap growth stocks such as AT&T, Verizon Communications, Comcast and Time Warner Inc.

“In general, the market strategists have been predicting a rotation back into the large-cap growth stocks like Comcast for so long that people have gotten tired of hearing it,” said Sanford Bernstein cable and satellite analyst Craig Moffett. “But scrutinizing the filings would suggest that a lot of big investors are now beginning to position their portfolios exactly that way.”

Mutually Appealing

Institutional mutual funds bought the following stocks in the first quarter:

Source: SEC reports.

CAPITAL RESEARCH:

AT&T

154.8 million shares

Sprint

18.7 million shares

Comcast (Class A)

10.25 million shares

Comcast (cl k)

3.25 million shares

CAPITAL GUARDIAN TRUST:

AT&T

4.4 million shares

Time Warner Cable

2.94 million shares

Yahoo

2.9 million shares

Comcast (Class A)

2.7 million shares

CBS

1.97 million shares

JANUS CAPITAL:

Comcast (Class A)

22.1 million shares

News Corp (Class A)

20.8 million shares

DirecTV

14.8 million shares

Liberty Global

14.1 million shares

FMR CORP.:

Time Warner Inc.

7.9 million shares

Charter

5.5 million shares

Comcast (cl k)

3.5 million shares

Comcast (Class A)

3.3 million shares

EchoStar

2.1 million shares

Sinclair Broadcast Group

1.1 million shares

Mutually Revealing

Institutional mutual funds in the first quarter sold these stocks:

Source: SEC reports.

CAPITAL RESEARCH:

Motorola

-15.8 million shares

Disney

-14.2 million shares

IAC/InterActiveCorp

-4.2 million shares

CAPITAL GUARDIAN:

Sprint:

-33.4 million shares

Cablevision Systems:

-2.7 million shares

JANUS CAPITAL:

IAC/InterActiveCorp:

-5.7 million shares

Motorola:

-1 million shares

FMR CORP.:

Cisco Systems:

-115.8 million shares

Qwest Communications:

-40.2 million shares

Viacom:

-8.1 million shares

According to the SEC filings, some new players are beginning to invest heavily in cable as well.

For example, T. Rowe Price Associates built a 4% position in Cablevision Systems in the first quarter, acquiring about 8.5 million shares. The timing of that buy was fortunate — before Cablevision’s Dolan family announced its $10.6 billion offer to take the company private. Between March 31 and May 16, Cablevision stock has appreciated 16%, increasing the value of T. Rowe Price’s investment from $321.5 million to $371.6 million.

Cablevision wasn’t the only cable buy for T. Rowe — it also bought 10 million shares of Comcast stock during the period.

Moffett was intrigued by what he saw as a polarization of big investors in DirecTV. According to filings, large institutional shareholders such as State Street Corp., Franklin Resources and Acadian Asset Management all substantially reduced their holdings in the direct broadcast satellite giant.

Acadian sold off about 10.3 million shares of DirecTV in the first quarter, reducing its stake from 17.6 million shares to 7.3 million shares; State Street unloaded 10.7 million shares, dropping its holdings to 28.4 million shares; and Franklin sold about 21 million shares, cutting its DirecTV stake to 23.9 million shares.

But quantitative funds, essentially funds that automatically buy and trade stocks based on complicated computer models, have continued to buy shares.

“That paints a picture of sort of a polarized set of viewpoints,” Moffett said.

State Street also bulked up on Charter Communications — adding about 1.2 million shares in the period — and Comcast (buying 24 million shares of Class A stock and 1.2 million of the special common shares). Franklin Resources also was bullish on Comcast, adding 14.3 million shares to its position in the quarter.

Capital Research & Management, the Los Angeles-based fund headed by legendary media investor Gordon Crawford, was a big buyer of telco stocks in the period, buying 154.8 million shares of AT&T (raising its position to 412.9 million shares); 27.2 million shares of Qwest Communications (upping its stake to 249.6 million shares); and 4.4 million shares of Verizon Communications (increasing its total stake to 102.8 million shares).

But Capital Research seemed equally bullish on at least the biggest cable names, adding 10.25 million shares of Comcast Class A stock during the period (raising its position to 24.9 million shares) and 3.25 million shares of Comcast Special Common Stock (increasing its stake to 9.75 million shares).

Capital Research also bought 6.6 million shares of Time Warner Inc. during the period (it had 136.7 million shares of the stock at the end of March) and was a participant in the March IPO of Time Warner Cable, ending the month with 715,413 shares of TWC.

At sister fund Capital Guardian Trust, AT&T was again the top buy (4.4 million shares), followed by Time Warner Cable (2.9 million shares); Yahoo (2.9 million shares); Comcast (2.7 million shares); CBS (1.97 million shares) and Time Warner Inc. (1.2 million shares).

At Janus Capital, the Denver-based family of funds that was an early backer of Comcast, that loyalty to the Philadelphia-based operator continued. Janus more than doubled its position in Comcast Class A stock, adding 22 million shares to finish the quarter with about 30 million shares.

Janus spread the wealth around media companies — it added 20.8 million shares of News Corp. Class A stock; 14.8 million shares of DirecTV; 14.1 million shares of Liberty Global; 11.5 million shares of AT&T; and 3.6 million shares of Time Warner Inc.

At FMR, the Boston-based parent of the Fidelity group of funds, AT&T was the biggest buy of the quarter, with FMR adding 78.8 million shares during the quarter. FMR also was the only one of the four funds that beefed up its cable position outside of Comcast and Time Warner, buying 5.5 million shares of Charter Communications and 1.2 million shares of Mediacom Communications.

FMR was equally generous with cable competitors — it added 2.1 million shares of EchoStar Communications and 1.1 million shares of Sinclair Broadcast Group, which has been involved in several public retransmission-consent battles with operators.